Not a piece of cake
The Cheesecake Factory is the most anticipated addition ever for Canada's busiest mall, but success for the American giant is far from guaranteed in a crowded and declining casual dining world
When The Cheesecake Factory announced last spring that it was launching its first Canadian location at Yorkdale Shopping Centre, customers immediately wanted to know if they could make reservations – months in advance of the opening. The news went viral as Torontonians rejoiced that they would no longer have to drive south to experience the prominent U.S. restaurant chain's 250-plus item menu.
A number of American restaurants have entered the Canadian market in recent years, but none have been as highly anticipated as the arrival of The Cheesecake Factory, which has inspired a cult following from professional athletes to suburban moms. Even Drake is an unabashed fan.
For Yorkdale, the country's busiest mall with 18 million visitors a year, the opening of The Cheesecake Factory this week is a major win. The chain, which has 210 locations in the United States and another 18 internationally, targets premium shopping centres, where it sends waiting diners off to shop with mobile buzzers that signal when their tables are ready.
Yorkdale has had several Canadian "firsts" this year, including the launch of outlets for Britain's Dyson appliance company and the British clothing brand Hunter, but the excitement over the new restaurant in unprecedented, said Claire Santamaria, the mall's director. "With every opening we kept getting asked, 'But when is The Cheesecake Factory opening?'"
But even with all the buzz, the restaurant's success is far from guaranteed. Numerous foreign chains, both food and retail, have tried to enter the Canadian market. Some, such as Five Guys, have succeeded, while others, such as P.F. Chang's and, most notably, Target, have failed. Well-established domestic restaurant chains are already struggling, challenged by a rise in food-delivery services and trendier, smaller and more diverse restaurants.
While Canadians are eating out as much as ever, their tastes are changing. Fast-food sales saw a jump last year to $26-billion and 4.5 billion visits, according to data from the NPD Group research firm. But sit-down casual restaurants saw a slight 2 per cent dip to $22-billion, and a 4 per cent drop in traffic to 1.3 billion visits.
The Cheesecake Factory, like other leading U.S. chains such as Chili's and BJ's, has been battling a similar trend south of the border. After several years of growth, the California-based company saw its sales drop 2.3 per cent in the third quarter of fiscal 2017. Its stock tumbled 32 per cent since its high point in May. CEO David Overton blamed the drop in sales on poor weather, saying it hurt the restaurants' patio traffic. But analysts pointed to broader trends, with a Bloomberg article declaring "Cheesecake Factory Inc.'s status as a bright spot in the gloomy casual-dining industry is beginning to fade."
Still, Yorkdale and The Cheesecake Factory remain confident, believing they have the "X factor" to make it work.
"We've had so many Canadian guests dining with us for so long in the States," said Cheesecake Factory spokeswoman Alethea Rowe, adding that the fame of the brand separates it from others.
The restaurant began in 1978 when Mr. Overton turned his mother's modest cheesecake bakery into a full-blown restaurant in Beverly Hills, Calif. The Cheesecake Factory prides itself on consistency in its locations around the world, thanks to a methodical approach to each of its menu items. A 2012 New Yorker piece by U.S. doctor and writer Atul Gawande even said that the medical industry could learn a thing or two from the restaurant's capability to make such a wide variety of dishes taste exactly the same, every time. He found that the kitchen operated as an actual factory, where prep cooks made ready-made portions for the cooks to use in step-by-step instructions that were provided on a touch screen. It was all topped off with every dish being given a rating out of 10 on its way out of the kitchen, adding a sense of quality control that not even hospitals have.
It's that predictability that Ms. Rowe believes Canadians will embrace. She called on the example of a diner at the restaurant's training day this week, who said the experience at Yorkdale mirrored the experience in the United States.
"It tasted just like what she had in Orlando as a child, so it's recreating those experiences that you can't get anywhere else," she said.
There were rumours about the chain coming to Canada as long as 15 years ago, but Ms. Rowe says the company made the decision now primarily because of the location at Yorkdale. Last year, Yorkdale finished a $331-million expansion project, which added 300,000 square feet and made room for brands such as Uniqlo and Nordstrom.
The mall will serve as a solid base where The Cheesecake Factory can get a feel for the Canadian market and see if expansion is a possibility, and is similar to the kinds of locations the chain has in the United States.
"We like to open and see how it does before getting too ahead of ourselves," Ms. Rowe said. "It's sort of a slow, methodical approach. … We take the same approach with all of our openings in new countries."
The Cheesecake Factory has licensed restaurants in Mexico, China and the United Arab Emirates, but its location in Toronto is the first corporate-owned store outside the United States.
Opening a corporate store represents a concerted effort to establish a Canadian presence, according to Robert Carter, a retail and food analyst with NPD Group.
"When you've got a corporate store, then you can have tighter controls and deeper pockets to run that store," Mr. Carter said.
"The risk is that they bring that U.S. corporate mentality to the Canadian market and might not understand the differences between the two markets."
Mr. Carter is cautious when it comes to the hype around the new opening.
"They're coming into the market where they've got a relative brand strength, so they may get trial," said Mr. Carter, but he says customers giving it a try isn't necessarily good enough when the casual dining market is as competitive as it is in Canada.
"The casual-dining segment, since 2008, has experienced a steady decline in traffic … so they're coming in at a time when their area of the market is really challenged."
He says the stakes are even higher when casual dining only makes up 12 per cent of the restaurant industry in Canada. That percentage is daunting when you consider that most casual dining customers only go out once or twice a month, and making them choose The Cheesecake Factory is a tough task when brands such as The Keg have deep roots in the community.
He also says that some of the characteristics that make The Cheesecake Factory special, such as its large portion sizes for cheesecake slices and entrée items such asburritos or cheese steaks, may not resonate with Canadians.
"They have to have something that's so much more appealing and that resonates with customers, compared to Pickle Barrel, Moxie's and Joey's, and all the other casual-dining concepts," said Mr. Carter, adding that brands from Western Canada, such as Earls and Cactus Club, have expanded into Ontario as well.
Douglas Fisher, a food analyst at consulting firm FHG International, is more optimistic, but said it's unpredictable how even popular American food chains will play out when they move north of the border.
"Everything comes in hot and then the market reacts in its own way," Mr. Fisher said.
"Most have come up and done poorly, some have come up and done well. I don't think there's much of a prediction – it's a good solid company with a well-rounded menu, but there's lots of Americans who've come up here and had minimal growth."
He pointed to two burger restaurants, Five Guys and Carl's Jr., as examples. Both had launches in Toronto, but Five Guys has prospered while Carl's Jr. closed up shop. They both focused on similar burger products and he says it's hard to explain why one failed and the other didn't.
Both Mr. Fisher and Mr. Carter say that the restaurant's ability to keep attracting customers after its first year will be telling as to whether the expansion was a success or a flash in the pan.
What everyone agrees on is that having The Cheesecake Factory at Yorkdale is good news for the mall itself.
Mr. Carter and Ms. Santamaria both said that The Cheesecake Factory's status as a destination in itself will help bring customers to the mall at a time when physical retail is losing customers to online shopping.
And despite whatever analysts are saying, the company's Ms. Rowe says that they're confident moving forward.
"Hopefully we'll do well here, which means hopefully we'll have more locations."